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Texas Manufacturing Expansion Continues but Pace Slows, Uncertainty Increases, Says Dallas Fed Survey

For Immediate Release: May 28, 2019

DALLAS—Texas factory activity continued to expand in May but at a slower pace, according to business executives responding to the Texas Manufacturing Outlook Survey.

The production index, a key measure of state manufacturing conditions, fell six points to 6.3. Positive readings in the survey generally indicate expansion of factory activity, while readings below zero generally indicate contraction.

Perceptions of broader business conditions showed some weakness in May. The general business activity index turned negative at -5.3. The company outlook index fell into negative territory also, coming in at -1.7. The index measuring uncertainty about companies’ outlooks jumped nine points to 16.1, its highest reading since last September. More than a quarter of firms said uncertainty increased this month.

“The latest Texas manufacturing report shows continued expansion but a downshift in the pace of growth in May,” said Emily Kerr, Dallas Fed senior business economist. “Firms’ outlooks deteriorated, with the index turning slightly negative for the first time this year and uncertainty surrounding those outlooks spiking. Several businesses pointed to tariffs, and specifically trade talks with China, as a contributing factor to the increased uncertainty.”

Responses to special questions posed this month to executives in both manufacturing and the service sector “show that more than 70 percent of firms are currently trying to hire, and more than 80 percent of those are having difficulty finding qualified workers,” Kerr said. “This naturally translates into wage pressures, and well over half of surveyed firms say they’re increasing wages to recruit and retain employees.”

Here are some additional key takeaways from this month’s manufacturing report:

Demand indicators fell but remained positive. The new orders index slipped seven points to 2.4, and the growth rate of orders index moved down from 5.2 to 1.1. The capacity utilization index fell to 7.7 from a seven-month high of 15.6 in April. Meanwhile, the shipments index edged up to 7.6.

Employment growth strengthened. The employment index rose seven points to 11.6. The hours worked index remained positive but inched down to 6.4.

Cost pressures were mixed. The raw materials prices index held steady at 7.4, while the finished goods prices index retreated from 6.0 to 0.7, with the near-zero May reading suggesting virtually no growth in selling prices. The wages and benefits index remained elevated and largely unchanged at 27.6.

Manufacturers were less positive about future business conditions. The index of future general business activity fell nine points to 9.1. Similarly, the index of future company outlook fell nine points to 11.5. Most other indexes of future manufacturing activity declined this month but stayed in positive territory.

Texas produces around 10 percent of total manufactured goods in the United States, ranking second behind California in factory production. The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
Email: jennifer.chamberlain@dal.frb.org